4 PITFALLS AN NRI SHOULD AVOID

There are a few peculiar things noted among NRIs.
The goals they set, the financial products they buy and the large heart they
show are a lot different from those who reside in India. They often fall into 4
pitfalls which make their future miserable.

Early Retirement

Many NRIs in Gulf want to return to India as
early as possible. Very few would like to work beyond 45 years. They have
no idea if they can really comeback early or need to work a few years more.
They have no idea what they will be doing once they return as they will still
be young and active.

At 45 you might have only started the peak
phase of your job in Gulf. Probably you will really create wealth from there
onwards only. It is not easy to get a job at 45 or after, in India. Even if you
get, most of often it will be a job at a lower level paying low salary. So in
most cases returning early could be suicidal.

You should think about early retirement only
if you know you will have enough money through live through your retirement and
pay for all goals like children’s education and marriage.

Building Costly House

NRIs dream about building a house at their
native place which is looking better and costlier than other houses in the
locality. They often forget to look their needs. Self-Occupied house technically,
can be called as an asset but in reality, is a cost. It is a dead investment.
This is because you will not earn anything from that or you will not be able to
use it to fund your goals.

Think, if you were to rent a house, how much
you will pay. Do not spend more than 30 times the annual rental on the
construction of the house. For example, if you are willing to pay a rent upto
Rs.10000 per month for a house, then you should limit your cost of construction
to Rs.36 lacs. This is a ball park figure.

Vacation Trip to India

There are software professionals working in metros
going to their hoe towns once in a while. They do not carry a lot of gifts
during such trips. But an NRI in gulf having similar salary will carry
lot of gifts for relatives and friends in each trip. There are many NRIs who
spends about Rs.80 thousand to Rs.1 lac every time they come with their family
from Gulf.

Time has changed. There are lot of
people who work in Indian cities and earn as good as NRIs. The glamour of being
an NRI is not there much. This infact is a boon for NRIs. They should use this
to ward off spending on gifts and overall vacation spending. This will help
them to save more.

Religious Charity

NRIs who are from certain religions are often
seen particular about following the religious practice of contributing a
portion of the income towards charity. But I have not found it as a specific
requirement of people from same religions, residing in Kerala.

Charity is good. But you should ensure that
you are self-sufficient. You can set aside a fund for charity after you ensure
that family’s finances are secured, and you are financially free. Till then
contribute small amounts as and when you feel, not like setting aside 10% of
your monthly salary for charity!

Easily subject to
Frauds

NRIs are often the target group for many
fraudsters. They capitalize on the insecurity complex and helping mindset of
the NRIs. Many times, people approach NRIs for borrowing money for surgery or
marriage describing a long story about their problems and distress. These may
not be genuine cases. The NRI will never get back the money. Once you know that
you need to save an amount every month to meet your various life goals after
meeting your expenses you will find very little left. At that time, you will
give away money only from the very little left.

An NRI who realizes that he has not saved any
money as he has spent everything on house and helping others, will start
feeling insecurity. He will be easily lured by get rich quick schemes. For e.g.
some real estate broker will sell him a barren hill side by telling that
prices will go up ten times because there are chances for a new airport near
that place or some SEZ project will come up there. Most often NRI will think
that it will serve his retirement need. When he returns he will find that
nothing has happened in that area and he will even find it difficult to sell
the land a realize his investment amount.

There is no ‘be rich quick’ formula. That is
the truth. If you have to create wealth you have to save systematically over a
long period. Otherwise only possibility is sheer luck which nobody is sure of.

Most of the issues and pitfalls can be
avoided by preparing a financial plan and following it. Financial Panning can
help NRIs manage their money, identify their goals and help achieve them. When
an NRI makes his plan, he will get a bird’s eye view on how his income has to
be allocated for various expenses, loan repayments, insurance premium payments
and savings towards goals. It will make him think before committing on anything
which is outside the plan. The plan will help him ward off the insecurity
feeling.

It
will also help you to review your insurance policies and help with advice on
your life insurance requirement. It also helps you with advice on controlling
expenses and managing your loans.

PrognoAdvisor.com
is a SEBI Registered Investment Adviser Company and does not sell any products.
Its unique advisory process which combine cash flow planning and goal planning
ensures that the plan is practical.